Q9RQ - Horngren'S Financial And Managerial Accounting

Question

Question: Explain the difference between a cost standard and an efficiency standard. Give an example of each.

Step-by-Step Solution

Answer

Answer

A cost standard is related to estimating the total cost used, whereas an efficiency standard is related to the direct material and direct labor hours.

Step 1 Difference between a cost standard and an efficiency standard

The cost standard is termed the estimation of incurring the total costs that are within the budgeted cost and the total cost standard that includes both all the standards, which are price/rate and quantity/efficiency standard.

On the other hand, an efficiency standard is defined as the estimation to use the total quantity of materials or use the direct labor hours.

Step 2 Example of cost standard and efficiency standard

Example of Cost standard: Direct material cost standard is the estimation to control the total direct material cost standard and material quantity standard.

 

Example of Efficiency standard: Direct labor efficiency standard compares the actual and standard hours/units to find out the variances.